From Part 1 of the Knowledge Base:
I don’t sell out of a stock because the stock price has gone up. Ever . That’s not a sufficient reason to me, no matter what it does to the EV/S.
This is an interesting question, however:
Pulling from the Knowledge Base again:
I want rapid revenue growth.
From 2020 to 2021, Revenue grew 70%
From 2021 to 2022, Revenue grew 51%
I look for recurrent revenue.
Not much here outside of monthly subscriptions for data ($10month) and FSD ($99/month or $199/month). This is an area for Tesla to grow into, if you believe Tesla will eventually solve FSD and robotaxis.
I really want high gross margins.
Tesla doesn’t satisfy that desire. In 2021 and 2022, Tesla’s gross margins hit the mid 20’s, peaking at 29.11% in Q1 2022l. But in Q1 of this year, Tesla started cutting prices to stoke demand and continue its sales growth, and as a result gross margin declined to 19.34%. There have been a few small price increases since then, but it’s going to take some time for those margins to get back up there. BTW, 19% GM is still really good for an automaker, but even 29% isn’t good for a typical company discussed on this board.
I look for rapidly improving metrics
Tesla is growing unit sales in excess of their long-term 50% CAGR target, started in 2020.
They have been consistently lowering the cost of building cars, both within a factory and with new, improved factories.
Growth in new businesses is exceeding growth in automotive.
I want a dollar-based retention rate over 110%.
Not going to get DBRR with Tesla.
I look for positive and growing Free Cash Flow (FCF).
Q2 2021: $0.61B
Q3 2021: $1.32B
Q4 2021: $2.8B
Q1 2022: $2.2B
Q2 2022: $0.62B
Q3 2022: $3.3B
Q4 2022: $1.42B
Q1 2023: $0.44B
As Tesla’s growth requires investing in new manufacturing facilities, and new vehicle introductions are spaced years apart, it’s not surprising to see FCF vary by quarter.
Almost all of my companies are founder led
Elon Musk is a founder of Tesla and is obviously still involved. Another founder, JB Straubel, who left to start a battery recycling company, was recently elected to the Tesla BoD.
I look for companies that are easy to follow.
There is no shortage of data available on Tesla, it’s one of the most widely followed companies in the world. Additionally, most automotive companies, including Tesla, release production and delivery numbers every quarter (and China releases those numbers monthly), well in advance of the quarterly results and conference calls, so there’s even advance information available, unlike almost every other company, where you don’t know sales results until the ER.
I look for a company that has a long way to grow.
Tesla sold 1.3M vehicles last year and is on track to sell over 10M vehicles in a year before the end of the decade. Its energy business (solar roofs, powerwalls, megapacks) is growing (although I’m disappointed in their growth rates), and there’s YOLO potential for things like full self driving/robotaxies and affordable artificially intelligent robots.
Finally, there is the problem of big numbers.
No doubt, Tesla is huge. It’s currently the 6th largest company by market cap in the S&P 500. Yet, with its core business growing sales at better than 50% CAGR (a trend that shows no sign of slowing down), it’s also a very good grower.
OTOH, Tesla’s large size has not resulted in lower stock price volatility. Tesla is a disrupter in a few industries right now, and my belief is many people have a hard time fully understanding that. As a result, they see Tesla as more vulnerable than it really is.
For instance, BofA just came out with a report that Tesla’s market share is going to decline, with legacy auto recovering. It’s a silly report on a silly metric. There isn’t an “EV market share,” there’s a personal vehicle market share. Tesla will continue to grow sales, not shrink.
And then there’s “valuation.” We could have a whole thread on how the so-called “Dean of Valuation,” Aswath Damodaran, has been wrong on Tesla for several years (as he himself as admitted more than once). My quick summary is that Damodaran has been unable to see that Tesla’s past growth isn’t going to suddenly slow down. A DCF analysis seems like rigor, but it’s really just an equation with variables, and the values for those variables are guesses from a person trying to predict the future.